TREASURIES-U.S. fiscal worries, Spain underpin safety bid
By Ellen Freilich NEW YORK, Nov 26 (Reuters) - U.S. Treasury prices rose on Monday as fiscal challenges in the United States and political uncertainty in Spain fed investors' appetite for safe-haven assets. The gains followed losses last week in thin holiday trading after signs a deal might be reached to avert the "fiscal cliff" of spending cuts and tax increases - due to take effect in early 2013 - allowed the safety bid to dwindle. However, by Monday the optimism on the fiscal cliff talks seemed more tempered, although gains in Treasuries could still be limited by the conviction that if the so-called fiscal cliff can be avoided, U.S. economic growth will safely outpace that of the euro zone and Japan in 2013. "Reports of very little compromise over recent discussions on the 'fiscal cliff' are driving rates lower," said Tom diGaloma, managing director at Navigate Advisors LLC in Stamford, Connecticut. Safe-haven buying also occurred as the European Union "is still sorting out Greece and Catalonia takes steps towards independence from Spain," he said. Separatists in Catalonia won a large majority in regional elections. A deep recession and high unemployment have fueled the separatist mood in Catalonia, which represents a fifth of Spain's economy, piling political uncertainty on top of Prime Minister Mariano Rajoy's economic problems. "Buyers of 10- and 30-year Treasury paper moved the market higher and flattened the yield curve before front-end supply this week," diGaloma said Benchmark ten-year U.S. Treasury notes rose 9/32 in price, easing yields to 1.66 percent from 1.70 percent on Friday. Thirty-year Treasury bonds rose 23/32 in price, bringing their yields down to 2.80 from 2.83 percent on Friday. "Given the six purchases of long-end paper expected from the Fed and (a total of $99 billion in) supply of two-, five- and seven-year paper from Treasury auctions, the curve should flatten this week," he said. Uncertainty about resolving the "fiscal cliff" should also favor lower U.S. yields going into year-end, diGaloma said. Euro zone finance ministers and the International Monetary Fund will seek to unfreeze the second bailout package for Greece on Monday, but they will first need to agree on whether some of the official loans to Athens might eventually be forgiven to cut Greek debt. Bond prices rose even though the market faces $99 billion of supply this week. The U.S. Treasury Department will sell $35 billion of two-year notes on Tuesday, $35 billion of five-year notes on Wednesday and $29 billion of seven-year notes on Thursday.
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